Capitalist disaster season is here once again

Five hundred years of capitalism has produced one crisis after another, an endless procession of violently deflating asset bubbles and horrific wars inextricably linked to competition over markets and resources. So it is frankly bizarre that, as the latest such crisis destroys massive amounts of wealth and threatens catastrophe to the entire world, mainstream American opinion lamely argues over whether lax regulation or the character flaws of securities traders and mortgage buyers are to blame. How many centuries marked by serious crisis every 30 years or so and punctuated by numerous smaller disasters will it take before we learn - capitalism creates devastating crisis by its very nature!

The state's role as guarantor of capitalism, as the only agency that can step in to prevent the system from destroying itself, is demonstrated anew with every crisis. What's really interesting is not this well-established phenomenon, but the cries of outrage against it. Libertarians squawk about the moral hazard of bailing out irresponsible financiers, who walk away from the disaster they created with millions of dollars apiece. This is a fascinating ideological subculture whose members actually take seriously the rationalizations used to justify the despotism and staggering inequalities required by market economies. The consistent application of their ideals would quickly destroy capitalism itself.

Liberals, meanwhile, decry the hypocrisy of a government that can come up with hundreds of billions of dollars on short notice to rescue rich people in trouble but which dismisses the everyday crisis of living poor in America as an individual problem. Don't liberals know by now? "Privatize the gains and socialize the pain" has always been the fundamental principle of free markets, and it really couldn't be any different.

The mistake of both groups is to conceptually separate the government from business. The capitalist state should be understood as fundamentally internal to the economic system, an institutional outgrowth of capitalism just as much as capital markets and commodities exchanges are. Capitalism could never function without the state to guarantee contracts, to make unprofitable investments that are necessary for commerce (especially building infrastructure and subsidizing transportation), to secure access to markets and raw materials within the system of global competition, and perhaps most important, to suppress - with violence if necessary - that discontent generated by the massive inequalities of wealth and power that markets create and to prevent the economy’s crisis tendencies from destroying the basis of accumulation. If you don’t like it, you have a problem with capitalism, not with the behavior of the government. Consider something different.

These are timeless truths for all market societies, but that doesn’t mean that capitalism always works exactly the same way. Far from it: capitalism is the most dynamic form of social organization - for both good and evil - that has ever been invented. Its periodic disasters and crises often require drastic changes to the process of accumulation, changes which then restructure the organization of society, power, and culture.

In The Condition of Postmodernity, David Harvey explains (pp. 119-197) that since World War II global capitalism has developed two separate “regimes of accumulation” - sets of rules and social relations that govern the operations of the economy. Emerging from the crisis of depression and war that nearly destroyed capitalism, the rulers of the economy had to make major concessions to save the system itself, leading to the economy-wide acceptance of Fordism. The Fordist economy was characterized by mutual restraint and cooperation on the part of both capital and labor - capital would provide stable jobs with good benefits and relatively low levels of abuse, and in exchange workers would accept the authoritarianism of the workplace and restrict their demands. The state oversaw the arrangement, maintained highly regulated domestic and international markets, and provided robust social insurance and collective services. Tied down by regulation, the finance sector retreated to unexciting tasks like taking deposits and making loans; making things rather than manipulating currency became the central focus of the economy, and large, cautious conglomerates became the most important players.

This arrangement provided high rates of growth and a stable basis for capitalist accumulation for 25 years. But in the end, the contradictions inherent in capitalism could not be overcome: the very productivity of Fordism doomed it as excess global capacity created by the full recovery of Deutschland/Germany and 日本/Japan and the industrialization of countries in Asia and Latin America ran up against the rigidities of the Fordist system. Combined with the oil shocks and the inflationary policies the USA pursued to address the emerging crisis, Fordism died a violent death. The stagflation of the 1970s, the severing of the dollar from gold, the collapse of the international system of fixed-rate currency exchanges, increasing diplomatic friction between the US and Japan - all flowed from the general crisis in the world economy.

To survive the crisis, business and the state joined forces to decimate the power of labor by attacking the unions and moving production wherever labor was highly repressed and exploited. The staid old conglomerates fared poorly, but smaller, more nimble companies forged ahead, pursuing new opportunities in technology, spectacle, and the exploitation of labor. The state’s role shifted from guaranteeing a stable and balanced (if still unequal) system to disciplining labor and tearing down the regulations inhibiting the flexibility that capital needed if it was to return to profitability. Freed at last, finance capital returned with a vengeance, and started down the path of reckless speculation that has culminated in the current crisis.

Harvey calls this new order “flexible accumulation”, and we can see its effects around the world in the neoliberal restructuring that has hit almost every country. Inequality has soared within societies as corporate executives and major investors - facing little resistance from devastated labor movements - have captured most of the increase in wealth. The government guarantee on basic human needs - education, healthcare, pensions, social insurance, public housing - has, where it existed, been eroded or eliminated. National boundaries have weakened, but in reaction to their weakening position many disadvantaged groups have turned to reactionary ideologies like religious fundamentalism and ethnic nationalism to organize resistance. Governments around the world, disciplined by the financial markets into austerity, have increasingly fallen behind on essential infrastructure investments and have failed utterly to address the impending climate crisis.

But all of that is irrelevant to capitalists - the important thing is whether they can continue making profits, and until the credit crisis there was no trouble on that score. But credit is the lifeblood of business, and unless the crisis eases up soon, even those whose business involves more than trading pieces of paper will have to seek new ways to survive. The question we confront is whether the shakeout will alter the ground rules that have sustained the neoliberal consensus, and how we might turn the situation to our advantage.